McDonald faces tough task to look good in M&S fashion

LONDON (Reuters) - Jill McDonald picks up something of a poisoned chalice when she starts as boss of clothing at Marks & Spencer (MKS.L) on Monday, with little room to maneuver as she tackles one of the biggest jobs in British retailing on her first foray into fashion.

FILE PHOTO: A customer looks at a clothing display at a Marks & Spencer shop in central London May 21, 2013. REUTERS/Suzanne Plunkett/File Photo

McDonald’s retail credentials are strong, but they were earned as CEO of bicycles to car parts company Halfords (HFD.L) and she will have to work within a blueprint set out by her new boss as she looks to deliver the sustained sales and profit growth that has eluded M&S for a decade in competition with a burgeoning fast-fashion market.

She will have to operate within the confines of the detailed strategy already set out by Chief Executive Steve Rowe, an M&S lifer. She must also work under the chairmanship of Archie Norman, who joined M&S this month and is known for turning around some of Britain’s biggest companies.

To compound matters, Rowe and predecessor Marc Bolland have already used sourcing directors Mark and Neal Lindsey to boost profit margins by changing the way M&S buys and makes clothes, taking away any easy gains for a new boss.

“If you’re not given free rein to implement the strategy that you want, you’ve got one hand tied behind your back,” said a former M&S director speaking on condition of anonymity.

In its 1990s heyday M&S was the go-to British high street destination for clothes, selling everything from party dresses to suits and underwear.

In 1997 it became the first UK retailer to post profit of 1 billion pounds ($1.3 billion). But while the 133-year-old group remains the Britain’s largest clothing retailer in sales terms, it has been squeezed by the likes of Inditex’s (ITX.MC) Zara, H&M (HMb.ST) and Primark, owned by Associated British Foods (ABF.L). Profit was 614 million pounds in 2016-17.

RADICAL RETHINK?

Rowe’s strategy is focused on reduced prices for entry-level ranges, cutting back on clearance sales and promotions while improving service. He also has a five-year program to close some stores and restructure others to reflect faster-growing online sales.

Some analysts have questioned whether Rowe’s plans are sufficiently radical, but he told shareholders in July that he was convinced it is the right strategy.

That makes it hard for McDonald.

“Is she just coming in to execute that plan?,” the former director said.

“Let’s say she wants to do something really quite radical that’s going to have a major impact on the bottom line. Rowe might say, ‘you can’t do that to me, I’m 18 months in ... I’ve given guidance to the City’.”

McDonald will have overall profit and loss accountability for all aspects of M&S non-food business, from design and sourcing through to the supply chain and logistics.

She will work alongside Jo Jenkins, clothing and beauty director, and Queralt Ferrer, director of design.

Richard Marwood, senior fund manager at M&S investor Royal London Asset Management, said McDonald could be under pressure to cut margins or increase prices after the Brexit-related slump in sterling, which is also weighing on consumer spending.

“The challenge of boosting growth in M&S’s clothing business will be no mean feat,” he said.

Rowe maintains that the naysayers miss the point. He has highlighted McDonald’s “fantastic customer insight” and a bank of operational, retail and leadership experience developed at Halfords and fast-food giant McDonald’s (MCD.N).

COMPLEX RELATIONSHIPS

“Whether you’re buying bikes and bike pieces or dresses and dress pieces, there’s the same type of negotiation needed, the same level of detail needed in terms of sourcing and profit margins and relationships with suppliers,” said one person with knowledge of the appointment process.

M&S insiders also point to McDonald’s all-encompassing job title of managing director, a subtle difference from previous incumbents’ title of director of clothing and home. The suggestion is that the change means her role could include wider issues, such as the online service proposition that has lagged behind those of rivals.

McDonald will, however, have to deal with a complex set of director relationships.

Reporting to McDonald will be Jenkins, who has more than 25 years of fashion experience. She was passed over by Rowe for the top clothing job but may have to teach McDonald the clothing ropes.

Meanwhile, Chief Financial Officer Helen Weir will lose responsibilities for clothing, home and beauty supply chain and logistics, which she has handled since last year.

There is also a danger that McDonald could be caught between Rowe and new chairman Norman, whose previous turnaround exploits include supermarket chain Asda and broadcaster ITV and who won’t shy away from tough decisions.

“Archie’s pretty hands-on, asking questions and probing strategy. That can be quite a distraction,” said the former M&S director.

McDonald has given away little so far.

“Whatever business I’ve worked in, the number one lesson — and I’ll take it forward to M&S — is you have to stay as close as possible to your customers,” she told reporters.

“It’s amazing how easy it is to slip off that path.”

Additional reporting by Emma Rumney; Editing by Kate Holton and David Goodman